Synopsis
According to a recent report, India's 10-year (10Y) bond yield is projected to remain between 6.25% and 6.55% in FY26. This forecast reflects the government's strategic borrowing approach and the impact of RBI measures on liquidity.Key Takeaways
- 10Y bond yield to range between 6.25 and 6.55 percent in FY26.
- Government's borrowing strategy stabilizes the yield curve.
- RBI's actions support liquidity and yield curve evolution.
- India's inclusion in global indices attracts FPI flows.
- Fiscal discipline boosts investor confidence.
New Delhi, April 5 (NationPress) India’s 10-year (10Y) bond yield is anticipated to fluctuate between 6.25 and 6.55 percent in the current fiscal year (FY26), according to a report released on Saturday.
The government’s well-structured borrowing strategy, which emphasizes a greater supply of securities at the short end, suggests a stable long end of India’s yield curve, as noted in a Bank of Baroda (BoB) report.
“The RBI’s initiatives will ensure that liquidity remains favorable for a smooth evolution of the yield curve. We predict India’s 10Y yield to stay within 6.25 to 6.55 percent throughout FY26,” stated economist Dipanwita Mazumdar.
The path of India’s 10Y yield in FY25 has been noteworthy. The beginning of FY25 saw some persistence in yield levels as, in April, the US 10Y yield increased by 48bps due to resilient inflation data and tight labor market conditions.
This trend was mirrored in India’s 10Y yield, which remained high during the same timeframe. Nevertheless, following this, a supportive US 10Y yield combined with the Federal Reserve initiating a rate cut cycle earlier than the RBI has favored domestic yields, according to the report.
Moreover, India's inclusion in global bond indices (official inclusion date: 28 June) and a disciplined fiscal framework have kept yields within a range. Liquidity conditions have also been generally favorable, except towards the end of the year.
However, the effects on yields were primarily limited, aided by the RBI’s heightened demand for securities via Open Market Operations (OMOs).
Another significant factor influencing domestic yields has been India’s gradual increase in weight within the global bond index, which has attracted considerable Foreign Portfolio Investment (FPI) flows, particularly through the Fully Accessible Route (FAR).
Other elements such as robust demand from banks, mutual funds, and pension funds have also bolstered yields, especially in a scenario where system liquidity remained constrained. The government’s carefully planned borrowing strategy with more short-term securities supply is indicative of maintaining stability in the long end of India’s yield curve.
Additionally, the ongoing commitment to the fiscal roadmap has further enhanced investor confidence, as highlighted in the report.
